UK SMEs encounter 8 legal issues a year

For the individual SME that means experiencing on average 8 legal issues every year. With around 5 million SMEs in the UK, making up 99 per cent of the private sector, they are the lifeblood of the UK economy and so this potentially has a very significant impact. This makes particularly interesting reading in a post-Brexit, pre-election environment, which already includes new inflation and tax pressures on the UK’s smaller businesses.

The survey (commissioned by online legal tech firm LawBite) was taken from SMEs across 20 business sectors and analysed by Cebr (Centre for Economics and Business Research) at the end of 2016, with the results being officially released by LawBite today.

The most common legal issues faced by the UK’s 5 million SMEs day-to-day were found in five key areas:

  • Disputes (13.2%)
  • Employees and Key Contractors (12.5%)
  • Customers and Suppliers (11.4%)
  • Terms and Conditions (9.2%)
  • Software (9.1%)

With the highest amounts estimated to have been lost in:

  • Disputes (£1.7 billion)
  • Employees and Contractors (£1.6 billion)
  • Customers and Suppliers (£1.6 billion)

Given the number of incidences of these kinds of issue, SMEs are over-optimistic about the prospects of future losses occurring because of these problems – with only 12% thinking these issues are ‘likely to pose a significant risk’ to their business. Interestingly, this percentage more than doubles (25%) when they are asked to forecast whether these problems are likely to affect other businesses rather than their own.

Clive Rich, LawBite Chairman said: ‘SMEs wrongly assume that risky outcomes are more likely to happen to other businesses than to themselves.’

A likely cause for these extraordinary levels of loss is SMEs’ reluctance to use lawyers. The Survey reveals a deep unease with traditional law firms.  Only 8% say that legal fees are good value for money. Only 1 in 5 SMEs rate law firms as ‘good’ in terms of ease of access and over 70% of respondents say that legal documentation is not easy to understand.

There appears to be a direct correlation between the negative attitudes of businesses to using lawyers (and law firms) and the amount they are at risk of losing per year. There is a reluctance to spend money on something they believe to be expensive, slow and generally inaccessible.

At LawBite SMEs can take a free Legal Health Check in the first instance to identify their legal risks and speak to an expert lawyer to prevent or reduce potential damage to their business.

Technology continues to be a dominant force for change across all industries and can prove to work in the favour of smaller UK businesses, where reducing costs is so crucial to their success.